Sunday, August 31, 2008

7th Art: Jean de Florette & Manon des sources (1986)

When I watched the duology "Jean de Florette" & "Manon des Sources" (1986, directed by Claude Berri and based on a book written by Marcel Pagnol) for the first time twenty years ago I was overwhelmed by the power of these movies. I had the opportunity to watch them again recently, magnificently reproduced in HD. These are cinema classics in many different levels. The two-part story -- you have to watch the two back to back -- makes the best out of tragedy narration techniques. The beautiful photography and musical score transport you immediately to the south of France. The cast is wonderful, especially Yves Montand, although I found Emmanuelle Béart somewhat stiff as Manon.

When watching them this time my perception of the story slightly changed. As an urban youngster I sympathized much more with the plight of Jean de Florette (Gérard Depardieu). Now I see in his behavior costly misjudgments of human character that are typical of those who didn't work hard when taking their economic classes.

The use of economics in these movies is commendable. Great examples of information problems, government failure, rational choice, risk, insurance (lack of), neighborhood effects, trust, credit, entrepreneurship, family, technology diffusion, and much more.

The deepest messages however are moral. First, they provide with a great example of how greed is a social problem only when it imposes on other people's freedoms. Jean de Florette and César Soubeyran were both greedy in the economic sense; nonetheless Florette was a righteous person who didn't impose on its neighbors' freedoms and therefore his greediness contributed to society, while Soubeyran was a crook that believed that attaining his own political and economic goals superseded the freedoms of his neighbors. Second, it shows that promoting evil against humanity is the same as promoting evil against yourself.

The movies are fortunately a fictitious tragedy. The real tragedy is that their moral and economic lessons have not yet been understood by most.

Stuff I've Read Today

Hamilton on Obama's economic obscurantism.
Mankiw on the Palins' skills (and the Obamas' lack of) at managing their retirement portfolio.

Cosmos: The Heart of Science

Carl Sagan on Kepler, from the magnificent Cosmos episode "The Harmony of the Worlds": "When he found that his long-cherished beliefs did not agree with the most precise observations, he accepted the uncomfortable facts. He preferred the hard truth to his dearest delusions. That is the heart of science."

Saturday, August 30, 2008

On Palin, Intelligent Design and Trade Barriers

I used a creationist example in one of my previous posts. It led some friends to ask me what I think about Palin's defense of teaching intelligent design alongside evolution. Here are my two cents.

There are two different issues here. One is freedom; the other is knowledge (rings a bell?). For me freedom and its protection are absolutes. I believe in freedom of speech, freedom of learning, and freedom of thought. Therefore, I don't criticize Palin's statement based on the principles of freedom. For example, the statement could be interpreted as being against the imposition of the values of the majority on a minority.

However, I criticize Palin's statement based on the principles of knowledge. Intelligent design isn't science, so sensible people should choose to keep it out of science curricula.

In an ideal society, decisions about evolution and intelligent design would work at the individual level. Freedom of choice should outweigh any other issue. The free market of ideas works, there's no need for government control of thought. Unfortunately, we have a system where there's yet too much government interference in education. In this case, the best policy would be to deregulate education and allow for more freedom of choice and thought. The second best policy would be to incentivize the teaching of evolution and discourage (not forbid) the teaching of intelligent design in government regulated science classrooms. No need for any policy regarding private or home schooling.

So I strongly disagree with Palin's stand on intelligent design based on knowledge.

The discussion brings me back however to my previous post. As Dr. McCoy would say, "Dammit Jim, I'm an economist not an evolutionary biologist! I think intelligent design is bad science, but defending trade barriers and subsidies is much worse science, in particular because it has real, immediate and significant effects on the welfare of humanity. I don't care about what you think of Darwin's beard or the Bose-Einstein condensates as long as you can cure my bellyache. In policy making, good economics trumps good evolutionary biology anytime.

Additionally, the media loves stories about the teaching of intelligent design in science classes, but what about all the economic obscurantism that permeates classrooms in this country at all levels and the media itself? In most other countries it's even worse. When it comes to good economics, the majority of the population has not yet got to terms with Adam Smith -- and he preceded Darwin. Pseudo-scientific economic statements are unfortunately the norm in classrooms and in the media.

Besides that, I'd like to see economists that support Obama openly criticizing him for perpetuating bad economics (more here) the same way I'm criticizing Palin for perpetuating bad biology and for suspending the gas tax in Alaska. Unfortunately those economists are hard to find, by itself is a phenomenon that deserves further investigation.

Friday, August 29, 2008

Stuff I've Read Today

The Economist on Obama's discourse.
WSJ on Obama's discourse, and more here.
Cowen on the experience trap and the politics of looking good.
The Economist on Palin.
WSJ on Bernanke's speech given on the occasion of Friedman's 90th birthday.
WSJ on Palin, more here, here, here, here, here and here too.
Mankiw on the questionable economics of Palin's gas tax cuts.
Boudreaux on politicians.

Commodities' Prices and Globalization

My article with A. Mollick, J. Faria and M. León-Ledesma is now published in print in the Cambridge Journal of Economics. Good publication timing, given the recent rise in commodities' prices. The basic conclusion of the article is that the long-run trend of decreasing commodities' prices is not caused by globalization, integration or changes in trade barriers. One could speculate, based on the article's empirical results, that the recent rise in prices is also not related to globalization. It's most probably just a temporary financial phenomenon.

Trading Frictions in Asset Markets: Unexploited Applications to FTT Research?

The Spring 2008 edition of the LAEF Newsletter has summaries of interesting articles presented at the "Trading Frictions in Asset Markets" conference, which was held on the UCSB campus in December 2007. It appears to me that there's a mostly unexploited connection between this line of research and the research on financial transactions taxes (FTTs) such as the bank account debits tax (BAD tax), exemplified by the defunct (RIP) Brazilian CPMF. Researchers interested on FTTs may want to take a look at what the trading friction Folks have been writing recently.

Thursday, August 28, 2008

Stuff I've Read Today

WSJ on Obama's discourse.
Chinn on the striking GDP numbers: international trade comes to the rescue.
Business North on the shipping of 54 gargantuan (37 meter, 112 ft) wind turbine blades directly from the Port of Duluth, MN to the Port of Suape in Recife, Brazil. International trade is beautiful indeed.
Cowen gives good reasons to lower the drinking age. Banaian does it too.
DNT on the Duluth resident that shared a cell with McCain in the infamous "Hanoi Hilton."
Banaian on mini-donuts politics and it's irrelevance to the price system.
Perry on how people like me -- and probably you too -- are the real Big Oil Fat Cats.
FOX and Cowen on Palin.

Candidates Voting Records on Trade Barriers and Subsidies

Economists that I know are almost unanimous on the understanding that trade barriers and subsidies are bad. Not all of them, but many of them, believe in these economic principles unconditionally. Some will even argue that it's not just a question of economic efficiency, that it's above all a question of economic freedom.

The CATO Institute has an interesting tracking system that reports the voting history of Senators on issues of trade barriers and subsidies (HT Cowen).

The three diagrams below summarize the voting history of the three candidates, where the right upper corner is where most economists would find themselves (click on the images to see the details).





There's no question that McCain is the only one aligned with sound economics on these two issues (naturally there are many other issues). However, many economists that I know openly support the Obama/Biden ticket. I would be curious to know their economic arguments in defense of these voting records.

A professional parallel here would be: how an evolutionary biologist voting for a politician that defends creationism would justify his voting record?

Wednesday, August 27, 2008

Stuff I've Read Today

Dubner on the per capita ranking of Olympic medals.
DNT on Minnesota's stagnant income growth -- or much to the contrary, according to Fed's economist Art Rolnick.
WSJ on Treasury Secretary hopefuls under Obama.
Cowen on Kay Bailey Hutchison as McCain's VP.
Perry celebrates the Q2's best real GDP growth rate in America since 1998: 3.3%.
WSJ however is more cautious in its evaluation of the economy and considers the role of the GDI.

7th Art: The Fog of War (2003)

I recently watched this outstanding documentary interview about Robert Strange McNamara directed by Errol Morris, a celebrated son of my alma matter. In the movie, McNamara talks about his eleven life lessons:

(1) Empathize with your enemy.
(2) Rationality will not save us.
(3) There's something beyond one's self.
(4) Maximize efficiency.
(5) Proportionality should be a guideline in war.
(6) Get the data.
(7) Belief and seeing are both often wrong.
(8) Be prepared to reexamine your reasoning.
(9) In order to do good, you may have to engage in evil.
(10) Never say never.
(11) You can't change human nature.

The segment on the Cuban Missile Crises is particularly powerful.

All lessons here are relevant to economics. I'd say however that number 11 is the wisest of all. McNamara would probably agree, since he chose it to be the last one.

The movie transports us to a time before the protests of 1968. It reveals a Democratic Party under JFK that is strikingly different from the Democratic Party of our days.

Stuff I've Read Today

Mankiw gives us a good example of how the politics of regulation truly works.
WSJ on the failure of activist leaders to gather crowds in Denver.
Cowen on which body parts are sung about the most.
Dubner on anti-locavorism.
Becker and Posner on Hollywood liberals.
DNT on rationing water at the shores of the largest fresh water reservoir in the world.

Tuesday, August 26, 2008

The Road to Freedom

Welcome to Incentives Matter. The main goal of this blog is to allow me to share my thoughts and readings with my students in a less intimidating environment than a large classroom. Friends and passersby are naturally very welcome to participate.

When choosing the blog header, I asked myself: if you had to summarize economics in a few words, what would those words be? The "two things about economics" looked to me like a good starting point.

The first thing about economics is "incentives matter." The second thing is "there's no such thing as a free lunch." A math econ interpretation of the two things is that the first thing is an optimal rule, while the second thing is a constraint. Between an optimal rule and a constraint I choose the rule.

"Incentives matter" is a fundamental concept in economics. It explains its unrivaled success as a social science and allows economists to easily shake off its critics. "Incentives matter" is a theoretically and empirically sound principle that works well across related fields of knowledge, such as evolutionary biology, psychology and anthropology. Almost all modern economics derives from this simple idea.

If the two things about economics can be seen as an optimal rule and a constraint, then what is it that is maximized? The utilitarian approach simplifies the problem by saying that the goal is to maximize utility. My personal take however is that the ultimate human goal is to maximize freedom. Maximization of utility or wealth is just a part of the whole business of becoming freer.

Here we get to the second part of the header. Since I believe that the ultimate human goal is freedom maximization, then it's natural that in this blog I will focus my attention on issues related to freedom and economics. Furthermore, it can be argued that knowledge is the most important engine driving us ahead in the road to freedom (another possible engine is love). Knowledge, condensed in all its representations, such as physical capital, human capital, technology, science, artworks, contracts, and institutions, leads to increased material and nonmaterial wealth and consequently frees us from the necessities of life.

Look ahead for my musings on freedom, economics and knowledge. And also on the 7th art, my favorite hobby!